Marks & Spencer is committing heresy daily this week. First, it summoned a demolition squad to go to work on the fabled Marble Arch store in central London. Now it will sell other people’s clothing brands, including in lingerie, the one part of the non-food operation where market share has remained strong over the years.
The venture into third-party labels is not quite an overnight revolution, it should be said. It is online-only and there has been some small-scale dabbling already. But the introduction of 10 outside brands in one go, including Hobbs, Jules, Sloggi and Triumph, is billed as the first of many waves.
About time, too. M&S has tortured itself and its customers over the years with its attempts to develop in-house brands. Only three can be said to have worked and are staying – Autograph, Per Una and Goodmove. The rest (the likes of Collezione and Indigo) have been gradually ditched. It would have been better to import partnership-style thinking 20 years ago.
The reluctance, presumably, stemmed from the lower profit margins on offer on external brands since, in some cases, M&S will merely be providing a souped-up delivery plus click-and-collect service. But the trend in the online clothing market is firmly away from solo offers and towards platform-style structures. Best to join in.
The M&S adventure is less radical than Next’s push of its “total platform” unit, which is more like a full-service operation for outside labels, but at least it is happening. Insularity has been one of M&S’s many problems. As with the purchase of half of Ocado’s UK retail operation, taking a risk seems the right approach.
The Restaurant Group’s post-pandemic prospects look more tasty
Andy Hornby, at the helm when HBOS hit the rocks, is clearly better at saving casual dining chains than large banks.
The pandemic prospects for The Restaurant Group (TRG), where he is the chief executive of the owner of Wagamama and Frankie & Benny’s, looked poor a year ago. A £57m fundraising last April was priced at a distressed 58p, versus 135p-ish before Covid struck. Wednesday’s £175m call on shareholders – the main course, as it were – was pitched a far more respectable 100p.
What’s happened in the interim? Well, Hornby has performed a decent rescue job. The company has closed the tired Garfunkel’s format, plus a lot of other sites, and obliged landlords to take some pain at Frankie & Benny’s. The net result is a business with 400 outlets, rather than 650, meaning Wagamama – the reliable bit, and acquired only in 2018 – is now a bigger part of the whole.
Fresh equity will make any future consumer lockdown more bearable and, more immediately, will de-risk the balance sheet. TRG is carrying £400m of debt, a legacy not just of Covid but also of the Wagamama purchase, and is paying an uncomfortable 6% to borrow. If the company can make top-line operating profits of £100m-£115m in 2022, which is what the analysts predict, the debt ratios would look normal again after this fundraising.
All one can wish now is that TRG stops banging on about how Hornby and his fellow executives sacrificed a portion of their salaries during the crisis. Come on, they had no choice while the workforce was being shrunk by 4,500. More to the point, the share options Hornby was controversially awarded last October have doubled in value.
Royal Mail delivers extraordinary turnaround
A year ago, Royal Mail’s share price had slumped to 135p and it wasn’t hard to imagine that a political crisis might develop. After all, the chairman, Keith Williams, would soon warn that the UK business – in other words, the Royal Mail part, as opposed to the GLS international operation – was losing £1m a day with the plunge in the volume of letters.
The share price now is 490p, an extraordinary turnaround. The boom in parcels has more than compensated for the decline in letters, which itself has turned out to be less severe than feared. The net result is that Royal Mail in the UK will now be profitable in the financial year that ends this month. In total, the group said on Wednesday, full-year operating profits are expected to arrive at £700m, an upgrade of about £150m on the estimate of only a month ago. The extended lockdown has helped.
One lucky – or far-sighted – beneficiary is Daniel Křetínský, the Czech billionaire who caught the bottom of the share price, more or less, and accumulated a 14% stake, now worth £690m. He is virtually the only person who can truly claim to have seen the recovery coming.